Can the US Government say NO to health care spending?

Ezra Klein has the liberal work argument for single-payer healthcare. If I may borrow a phrase from Megan McArdle, it falls for the immaculate negotiation argument. Here’s how I think Ezra imagines negociations would go:

Gov Official: Your drug is too expensive.
Pharma: It costs us a lot to develop, we need to charge 100 for it.
Gov Official: 50.
Pharma: No, we cannot sell it this cheap. How about 95?
Gov Official: Nope, it’s either 50 or nothing.
Pharma (grumbling): Ok, 50, but we’re not happy.

Here’s how I think they’ll go:

Gov Official: Your drug is too expensive.
Pharma: It costs us a lot to develop, we need to charge 100 for it.
Gov Official: 50.
Pharma: Let us think about it.

Pharma leaks a story about government death panels putting a value of life. Some congressman are asked about it my a news station friendly to the opposition party. A bipartisan effort is made to care for the needy.

Pharma: We thought about it and it’s still 100.
Gov Official: Ok.
Pharma: Next year, we’ll have a cost of living increase. It’ll be 110.
Gov Official: Let us think about it.
Pharma: Maybe this should a public discussion.
Gov Official: No need, 110 is very fair.

Your ability to negociate is exactly defined by your ability to walk away. In many of these cases, there is no way that the government will walk away. If anything, it’s the providers who routinely threaten to walk away from Medicare!

What do you think that doctors and patients would feel and do if there was a guideline for what fraction of a doctors Medicare cases could be prescribed brand-name medication or referred to specialists? The reason that the US government doesn’t do this now is because people don’t want it to do it. In other countries, the general population accepts this (in large measure because the richer, more educated, population who would protest is the one who ends up getting those brand-name medications and expensive procedures).

One of the most irritating things about the health care debate from the liberal side is that they propose often very sensible ideas, but then fail to actually argue that it should be done, saying they’ll press for them in 2016 if only you agree to spend a few billion dollars now.

Two weeks ago, as the FDA revoked the license for Avastin for breast cancer as evidence mounted that it is ineffective and it may even be detrimental. Medicare immediately announced it would continue covering it at full cost! What is stopping Medicare from taking advantage of this long-hanging fruit: stop paying for a very expensive treatment that probably makes people worse. It could do it now. There will be a backlash, sure; why won’t there be one in 2016?

Ezra Klein has the liberal work argument for single-payer healthcare. If I may borrow a phrase from Megan McArdle, it falls for the immaculate negotiation argument. Here's how I think Ezra imagines negociations would go: Gov Official: Your drug is too expensive. Pharma: It costs us a lot to develop, we need to charge 100 for ...